Insurers’ appetites vary depending on scheme size, duration and profile, so you have to understand what


segment of the market a


scheme belongs to. Tiziana Perrella, Dalriada Trustees


it means for the residual strategy. What are you going to leave behind and can it cope in different market conditions? We stress test the residual strategy for different leverage levels in the LDI portfolio and higher return requirements, if needed. Do you retain the flexibility in your residual strategy to manage in different market conditions to achieve your goals? If that works, you can do a number of transactions along the way. Myerson: That comes down to having the right advisers. Not every adviser will be as assiduous in making sure a journey of several buy-ins works for everyone because there is, of course, a premium for them doing the buy-in work themselves. I have seen buy-ins where the residual assets are not sufficient to pro- vide growth at a steady rate of return, so the sponsor has been badly advised. Cusack: I have a sponsor whose adviser is telling the trustees that that they must do a buy-in. The sponsor is offering a lot of money to do it. But the amount they are offering, the residual assets and the time horizon do not stack up. They said they are not looking to buyout at the moment; they are looking to manage their longevity risk. The trustees are concerned that they are cutting their nose off to spite their face. Barron: We can help with those stress tests to make sure the illiquidity risks of doing a buy-in are understood as well as the benefits. If the interest rate falls that have happened over the


past 10 years reverse, how will your liquidity look when yields rise and equities fall? Pickering: This underlines the importance of having a project plan and being nimble. Often the project plan can envisage an intermediate asset class and the cost of roundtripping in and out of that asset class may be sensible over eight years, but at five years the cost dwarfs the investment benefits. One needs a project plan but one also needs an adviser to say we do not need to apologise for changing the project plan. Hartree: You need a can-do adviser. When talking about long- term planning, are you holding anything too illiquid? There is usually a way around things, there is usually a price. If that is understood on both sides, the sponsor could be happy to take a haircut. There will be a market for it, but you do not want your adviser to say there is nothing we can do as it does not mature until 2023. You need them to say, we can do x, y and z. Perrella: There is a difference. Some assets are illiquid and some are very illiquid. The timeline for this disinvestment could be anywhere between six months and five years, although it is generally only a small proportion of a scheme’s assets that are sitting there. Part of the preparation is having proactive advisers looking at when is the right time to come out. It might be later on if the assets are delivering good returns and we then accept the risk


July–August 2022 portfolio institutional roundtable: Endgame investing 15


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